• The average contract interest rate for 30-year fixed-rate mortgages increased to 3.10% from 3.03% in the past week.
• Applications to refinance a home loan decreased 1% last week from the previous week.
• The average loan size for a purchase application reached $410,000, its highest level since May.

Higher interest rates took some recent wind out of the sails in the mortgage market.

After gains the previous week, total mortgage application volume fell 1.1% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $548,250 increased to 3.10% from 3.03%. Points, including origination fee, rose to 0.34 from 0.30 for loans with a 20% down payment.

"Increased optimism about the strength of the economy pushed Treasury yields higher following last week's FOMC meeting. Mortgage rates in response rose across all loan types, with the benchmark 30-year fixed rate reaching its highest level since early July 2021," said Joel Kan, MBA's associate vice president of economic and industry forecasting.

Applications to refinance a home loan, which are highly sensitive to weekly rate movements, decreased 1% from the previous week and were essentially flat from a year ago. The increase in interest rates occurred late in the week and continued into this week, suggesting the negative effect on refinance demand will be more severe in next week's report.

Mortgage applications to purchase a home fell 1% last week and were 12% lower than a year ago. The weakness in purchase demand is less about rising interest rates, which are still historically low, and more about sky-high home prices.

Prices nationally increased 19.7% year over year in July, up from an 18.7% annual increase in June, according to the latest S&P CoreLogic Case-Shiller Home Price Index. That's another record increase.

"With home-price appreciation continuing to run hot, increasing more than 19 percent annually in July, applications for larger loan amounts continue to outpace lower-balance loans. The average loan size for a purchase application reached $410,000, its highest level since May 2021," Kan said.

Price gains are expected to soon start cooling slightly, simply because sales have dropped and more supply is coming on the market. Higher mortgage rates will also take some of the fuel out of rising prices, since potential buyers would face higher monthly payments.